between the owners (shareholders) of a firm, defining their mutual
obligations, privileges, protections, and rights, and usually comprising the firm's articles of association
or bylaws. Although a properly constituted shareholders' agreement protects all signatories, its provisions typically are more important to minority shareholders (holding less than 50 percent
of the voting shares), such as those which stipulate the power
of minority shareholders to (1) demand
, (2) force
the firm to pay a dividend
if there are profits, (3) sell
their shares to other shareholders at a fair market value (FMV)
, (4) formula
of determining FMV, and (5) method of settling disputes over FMV.
It ensures that there is a market
for the shares of a shareholder
with the firm is terminated for whatever reason, and safeguards the interests of the continuing
shareholders from the possibility of outsiders taking control
of the firm.